(a) What is the own price elasticity of demand for bicycles? Would a firm selling bicycles at the current price increase, decrease, or not change its revenue by raising the price by 1%? (b) Are bicycles a normal or inferior good in Holland? By what percentage would demand for bicycles change if average income decreased by 3%? Explain.
(a) What is the own price elasticity of demand for bicycles? Would a firm selling bicycles at the current price increase, decrease, or not change its revenue by raising the price by 1%? (b) Are bicycles a normal or inferior good in Holland? By what percentage would demand for bicycles change if average income decreased by 3%? Explain.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The demand function for bicycles in Holland has been estimated to be
Quike
2300+ 0.02M - 5Pbike,
where M is income in Euros, Quike is the quantity demanded of bikes in units, and Pbike is the price
of bikes per unit. Suppose that the current price of a bike is 100 Euros and average income is 60,000
Euros.
=
(a) What is the own price elasticity of demand for bicycles? Would a firm selling bicycles at the
current price increase, decrease, or not change its revenue by raising the price by 1%?
(b) Are bicycles a normal or inferior good in Holland? By what percentage would demand for bicycles
change if average income decreased by 3%? Explain.
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